Trendspotting: Post-Pandemic Pessimism

NewsWire: 6/2/21

• Across 17 surveyed countries, a median of 64% think that today's children will grow up to be worse off than their parents. The most pessimistic countries are France and Japan, but the U.S. isn’t far behind. (Pew Research Center)
• NH: This spring the World Bank announced that "the global economy is poised to stage its most robust post-recession recovery in 80 years." Sounds great, right? But when Pew went around the world about the same time and asked people to assess the performance of their national economies, it found the typical response to be quite a bit short of all-out enthusiasm.

• Surprisingly, across 17 nations, the median response was negative: 52% of respondents said the current economic situation is "bad"; only 47% said "good." The answer would have been even more negative if the median were weighted by population, since most of the smallest countries were more positive and most of the largest countries (United States, France, Spain, Italy, South Korea, and Japan) were quite negative.
• Timing affected many of these responses. If the survey had been conducted closer to the present, no doubt the response in several of the most positive East Asian countries--now impacted by new Covid waves--would be a lot worse. And the response of the U.S. and southern and western Europe would be somewhat improved.
• Still, the overall gloominess is striking. Back in the spring of 2019, in the 13 countries where Pew ran a similar survey, the average share of respondents calling the economy "good" was 52%. That was late in a business cycle. Indeed, as we now know, that was at the end of a business cycle. In 2021, in those same 13 countries, the average share is 47%. Is there a good reason why economic performance was ranked so much higher two years ago than today?
• Let's look at possible explanations.
• One possibility is that the public is always myopic with respect to the business cycle--that is, always ranking the current economy better after a long recovery than at the beginning of a new recovery. Perhaps the assurance by experts that rapid recovery is now certain is not enough to rectify this old habit.
• Another possibility is that the high-income world was already discounting a fast recovery and was therefore quick to complain that it wasn't arriving fast enough. Or maybe ordinary people, more than political leaders, have been spooked by persistent supply-chain shortages and the recurrent waves of ever-more policy-resistant Covid-19 variants.
• Still another--and more worrisome--possibility is that the public is reacting negatively to some of the longer-term structural shifts that it perceives in a post-pandemic environment. These could include greater household inequality in income and wealth; further pricing power by large incumbents; less innovation and risk taking; greater central-bank control of financial markets; significantly higher levels of public debt; and the personal and economic drag of Long Covid (see "The Long Shadow of Long Covid").
• In short, maybe the public sees a transformation in how the world works following the pandemic--and does not especially welcome what it sees. A couple of recent studies that look historically at economies after pandemics may support the public's intuition. One paper, by the San Francisco Fed, shows that major pandemic events (even excluding catastrophes like the Black Death) regularly inaugurate eras of less investment and lower real rates. Another, by a team at the IMF, shows that even minor pandemics trigger periods of greater social unrest and civil violence along with subpar economic performance.
• Pew can't examine such causal theories directly, of course. But Pew does ask another question that can serve as a sort of surrogate indicator of long-term public optimism. And that's the question of whether you think that today's children, when they grow up, will be better or worse off than their parents. Here are the most recent (2021) responses.

• How's this for gloominess? In only two countries--Sweden and Singapore--do those who say children will be better off outnumber those who say worse off. In many countries, including the U.S., Japan, and much of southern and western Europe, the long-term pessimists outnumber the long-term optimists by more than three-to-one.
• Pew has been asking this question globally since 2013. And, as we might expect, the answers to this long-term question are much more stable over time than the public's evaluation of current economic performance. But it's worth noting that the average share of respondents saying children will be worse off was slightly higher in 2021 (by one percentage point) than in 2019, and in fact was higher in 2021 than in any prior year except for 2013 (when it was lower by one percentage point). In 2013, the shares were generally higher in western Europe, which was still caught in the downdraft from the GFC, and lower in East Asia.
• Typically, early in a business cycle, long-term sentiment is higher than short-term sentiment. (You can easily see this in the U.S., for example, when you compare the two Conference Board indicators over the last several decades.) That isn't happening this time around. The reason clearly isn't because short-term sentiment has risen excessively. The culprit, instead, appears to be stubbornly high long-term pessimism that didn't improve much over the last business cycle in most of the world and seems to have surged even higher at the beginning of a new business cycle.
• Let's now look more closely at the United States. If the long-term "worse off" number in 2021 (68%) looks unusually high to you, you're on to something. It is in fact the highest ever measured by Pew going back annually to the first time it asked the question in 2013. Its previous high-watermark was 65% in 2014. Moreover, looking at similar questions asked earlier by Gallup, Roper, WSJ, and NYT (see here, here, and here) I am persuaded that this is probably the highest U.S. reading ever measured, going back to the earliest known version of this question asked in 1983.
• In comparing 2020 to 2021, Pew did unearth an interesting reason why pessimistic answers to the long-term question rose so high this year. As we have often pointed out, optimism and pessimism about the economy now closely tracks respondents by partisanship. Red-zoners are optimistic when the red zone is in power, and ditto for the blue-zoners. (See "If You Love Trump, You Think the Economy is Strong. If Not, Not.")
• But once Biden assumed the presidency in January, the pattern seemed to break. While conservative Republicans, on cue, immediately grew more pessimistic, progressive Democrats did not grow much more optimistic. For the first time, perhaps, since the Obama years, we're witnessing bipartisan gloom.

• Of course, maybe downbeat progressives aren't really to blame either. It could just be that Americans on average are more pessimistic today about their long-term future because the pandemic has revealed to them more justification for such pessimism--for example, in partisan rancor, in civic dysfunction, and in social isolation. We have covered many of these findings over the past year. See, for example, "Americans Pessimistic About Social Security... And Everything Else," "America Is Registering Record Levels of Unhappiness," "New Pessimism About Future of Pandemic," "Global Millennials: Down on Democracy and Drawn to Populism," and "Democracy in Dark Times?"
• Lest you wonder: I do not seek out these dark themes. I follow the data, and they lead me there. Sometimes, as events transpire, we can notice long-term good news hiding behind short-term difficult news. What we notice in America today is something different: Long-term difficult news hiding behind short-term good news. Once the sentiment and behavior deltas change direction, I will be the first to let you know. 

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